Watch The Hidden Costs on Discounted Mortgages
May 2005
Never forget that finance companies always have the potential to be sneaky when it comes to hidden fees. Of course those who recognise this fact before they do any business can normally spot the good deals over the bad ones. But now margins for offering products such as mortgages are being squeezed all the time so some lenders are revising the rules as they go along, and this makes it ever harder to budget and plan.
Hidden Mortgage Fees
The new style exit fees on some mortgages are a case in point because they aren't in place when you sign up for a deal but suddenly appear when you want to switch mortgage. It's all about generating extra income and makes it very hard when trying to compare one mortgage over the other.
And it's not just exit fees that are causing problems, other fees are being tacked on all the time including arrangement, application or completion fees that you pay when you take out the loan, sealing fees and deeds-release fees when you leave. All these help to subsidise the so called advertised rates that appear in the marketing literature. The finance companies must be laughing because they know that on the whole they're dealing with clients that haven't done their homework or don't understand that many of these costs are as we said in the beginning, sneaky.
Who's Charging What?
Abbey is the latest to raise its exit fee. The amount will increase by 25% to £225 so borrowers who are locked into fixed-term loans have no option but to pay this increased fee if they want to remortgage with another lender when their deal ends.
Abbey joins a lengthening list of lenders who have raised the stakes for customers who want to search out the best mortgage deals. So far this year the Royal Bank of Scotland, Leeds & Holbeck Building Society, Co-operative Bank and Bradford & Bingley’s Mortgage Express have increased the penalties for customers who decide to take their business elsewhere.
Alliance & Leicester, the UK’s eighth largest lender, raised its exit charge by £100 to £295 last year. Nationwide’s fee may be a more modest £90, but many of the society’s customers still object to the charge on principle.
Some lenders also argue that exit charges are unwarranted, including HSBC, one of the UK’s ten biggest mortgage lenders. A spokeswoman for the bank says: “We price our mortgages appropriately. We do not see the necessity of applying exit charges.” This is good news for HSBC clients but would you bet big money that HSBC doesn't decide to follow many of the other lenders in the future? All it has to do is announce the fact and the poor borrower can do nothing about it.
Another Trick
Some homeowners may also have to fork out an additional payment when their mortgage ends because their lender charges one month’s interest to the end of the calendar month, even if the loan is repaid on the first day of the month.
To be fair many lenders have stopped this disgraceful practice but 16 lenders including Portman Building Society, still charge interest to the end of the month. Borrowers with a £200,000 mortgage at a rate of 6.75 per cent could pay up to an additional £1,125 under such an arrangement.
This is a real sting in the tail because in reality it's nothing more than a redemption penalty in disguise. Borrowers are forced to pay interest on a loan that they have already paid off which as many personal finance professionals point out is very hard to justify.
Summary
A mortgage for most people takes the single largest slice out of their pay packet and therefore all and any research into the product is welcomed. Take care not to be dazzled by the headline rate of interest because associated charges can often make the deal uncompetitive in the future.
Buy some mortgage magazines, talk to an independent broker and try to get a feel for exactly what all the charges are because in this day it pays dividends to remain flexible. Today's best buy may well be eclipsed in a few years so you can save big money by switching lenders, but only if you know how much switching will cost etc.
It's not easy if the finance companies start moving the goalposts as Abbey have done but the old military saying works well in the personal finance game, time spent in reconnaissance is time seldom wasted, or to put it in plain English, do plenty of homework.
Useful Websites
|
